| HONG KONG/SINGAPORE
HONG KONG/SINGAPORE Oct 1 When Wal-Mart Stores
Inc drew a rush of 80,000 shoppers on the opening day of
its first China supercentre in 1996, the world's most populous
country looked like easy pickings for the top global retailers.
Flash forward to 2012 and China has been a tougher market
than expected. Overseas names from Britain's Tesco Plc
to Germany's Metro AG are slowing their Chinese
expansion, while Hong Kong-listed Sun Art Retail Group Ltd
has overtaken Wal-Mart as the country's top
The move last month by U.S. home improvement chain Home
Depot Inc to close its big box stores in China served up
the latest evidence of foreign retailers' struggle with a
crowded market, slowing economy and tough competition in a
country that was once their best hope for growth.
"The rapid growth era for such types of hypermarket
operations is over and it's not as easy as before to generate
profit by simply opening new stores," said Steve Chow, an
analyst at Kingsway Group Research in Hong Kong.
Wal-Mart, which now has 364 China stores, may no longer draw
the monster crowds seen in the early days, but its initial
success has attracted plenty of competition -- perhaps too much.
China's hypermarket segment, with retail sales estimated at
506.9 billion yuan ($80 billion) last year, includes the world's
three largest retailers in Wal-Mart, France's Carrefour SA
and Tesco, and a crowded field of domestic players led
by Sun Art.
Hong Kong-listed Sun Art said the marketplace was full and
the next phase might be consolidation.
"We don't see much room for newcomers unless their business
model is very different from others," Sun Art Chief Executive
Bruno Mercier told Reuters in late August, after the company
reported a 75 percent jump in first-half net profit.
Metro, which in 2010 said it saw potential for 100 of its
Media Markt consumer electronics stores in China, is now more
cautious on expansion. Its chief executive, Olaf Koch, said
earlier this year the group would decide later on whether to
open "100 or 50" of the stores in what he termed a "very tough"
Home Depot's struggle partly reflected the cultural
challenge of winning over Chinese shoppers with a U.S.-style
do-it-yourself model -- why would consumers take on home
improvement projects themselves when hiring contractors is
It was also a sign that retailers are feeling the pinch as
the world's second-biggest economy heads for its slowest year of
growth since 1999.
"The reality is that the economy in China is slowing, and
with it there will be some impact on our China growth," a
Wal-Mart spokesperson said in an emailed response to questions
from Reuters. "Customers in China have become more conscious
about their spending, and we believe that now, more than ever,
our (low price) promise is resonating with Chinese customers."
To be sure, overall retail sales growth remains high by
international standards -- year-on-year growth has held above 13
percent every month this year, and in fact has not posted an
increase smaller than 10 percent since 2006 -- but it has slowed
from 17-18 percent growth late last year.
And big-box retailers haven't come close to keeping up with
that overall sales growth rate in a country where the vast
majority shop at local markets. A t Carrefour, 2011 sales at its
China stores open at least a year fell 0.8 percent. Even Sun Art
has been singed: its same-store sales growth cooled to 4.3
percent in the first half of this year, from 11 percent a year
BIG IN CHINA
When Wal-Mart opened its first China store, the main
competition was Carrefour, which launched its first Chinese
store in 1995. Sun Art, a joint venture between Taiwan
conglomerate Ruentex Group and privately held French retailer
Groupe Auchan SA, followed three years later and
quickly caught up.
On a global scale, Sun Art can't touch Wal-Mart or
Carrefour, the world's two biggest retailers with combined
annual revenue of more than $550 billion.
But Sun Art's success in China -- its $10.8 billion in 2011
revenue was 40 percent larger than Carrefour's China total --
shows how the giants can be tamed.
Sun Art, which operates stores under the RT-Mart and Auchan
banners, controls 12.8 percent of China's hypermarket segment,
topping Wal-Mart's 11.2 percent and Carrefour's 8.1 percent,
according to research firm Euromonitor. Sun Art overtook
Wal-Mart in 2010 and extended its lead in 2011, the data shows.
At a Sun Art-owned store in Shanghai's working-class Yangpu
district, 66-year-old Yao Jinghua spent 138 yuan ($21.87) buying
meat, eggs and some honey and crackers that were on sale. A
Wal-Mart store is about a five minute drive away and Yao said a
free bus to the store stops in front of her house, but she
doesn't shop there.
"I don't like Wal-Mart because it's not convenient," she
said in a television interview with Reuters. "Their products are
good, but it's relatively expensive. Yeah, more expensive."
Sun Art's success has not gone unnoticed on the Hong Kong
stock exchange. Its shares trade at 27 times its 12-month
earnings estimates, according to Thomson Reuters StarMine data,
well above Wal-Mart's ratio of 14.3 and Carrefour's 12.1.
The stock also leads its larger global rivals on analyst
revision scores, a StarMine measure of analysts' earnings and
revenue estimates and rating changes. Sun Art scores a strong
85, above Wal-Mart's 74 and Carrefour's 46.
China has no shortage of smaller players that could be
acquisition targets to help the big global players regain the
top spot, but the food and staples retailing segment as a whole
looks pricey compared with the rest of the world. Hong Kong- and
mainland Chinese-listed companies in that sector trade at about
20 times the next 12 months' earnings estimates, compared with a
global average of 14.6.
If consolidation is coming, Sun Art does not seem keen to
take the first bite.
"We don't see many M&A opportunities because not many stores
are up to our requirements in terms of scale, standard and
quality," said Peter Huang, Sun Art's executive director.
"We came across these kinds of opportunities before but we
gave up eventually as we didn't want to eat four pieces of cake
we didn't want, in order to have two pieces of cake we were fond
of," he said.